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Property Investment / Loan Structure

Discussion in 'Real Estate' started by chrisando, 19th Oct, 2011.

  1. chrisando

    chrisando New Member

    19th Oct, 2011
    Hi All,

    Just looking for some advice on property investment and the best way to structure a loan.

    We currently live in House1.
    We have purchased House2.

    Bank/NAB holds security of both properties for the mortgage.

    We want to move into House2 and use House1 as an investment rental property.

    Because the loan is over both properties we are told this is not ideal from a tax situation, because we cannot negative gear on House1/Investment.

    Can we split the loan, have as much tied up into House1 as the bank would allow as a 'interest only portion'. Have the remaining on House2 as a principle+interest loan?
    Would this allow us to take full advantage of negative gearing?
    Is this the best way to structure it all?

  2. Terryw

    Terryw Well-Known Member

    9th Jun, 2006
    You could split the loan, and probably should, but you could not artificially increase the portion for house 1 to get higher tax deductions.
  3. GregR

    GregR Well-Known Member

    13th Jul, 2009
    Berwick Vic
    It is not quite enough information to answer.
    While the banks may have security over both, generally it is in the form of two loan, one for the H1 at whatever $ and LVR (perhaps low) and then a new loan on H2 which may be a higher dollar and 105% LVR.

    It is not ideal but it is what you have.
    The steps I would consider - look at overall position for H1 and then work out best ownership, you or your partner and consider changing which you should be able to do without stamp duty to best maximise (or minimise) after tax position.
    Then change H1 loan to an IO.

    For H2, use either a P&I loan or IO with an offset and use the offset properly to reduce the non deductible interest costs. The reason I suggest the latter is for exactly the position you are now in, circumstances change and you need to forward plan to take advantage of possible changes.

    Another option is to sell H1, take advantage of no CGT, use equity to minimise owner occupier loan on H2, settle, refinance H2, set up a LOC facility secured against H2, purchase an IP using another lender for majority of funds and part of the LOC to settle.

    Third possibility, look at another legal entity to purchase H2, then rent it. This depends on all sorts of factors so get some good advice and know what your end goals are.
    Do the numbers to see the differences and then decide.
    Good luck.